Pharmaceutical Supply Chains are Due for a Radical Overhaul Says PwC

While recent attention has focused on issues such as the
challenges associated with drug discovery and the regulatory review
process, pharmaceutical companies have invested comparatively
little effort in updating their manufacturing and distribution
operations, many of which are inefficient, under-utilized and
ill-equipped to cope with new medicines, cost pressures and health
reform expectations, according to the latest report in the Pharma
2020 series, Supplying the future: Which path will you take?,
released today by PwC US.

Representing a significant amount of the cost base of most
bio-pharmaceutical companies, the supply chain is the link between
the laboratory and the marketplace and includes everything from
sourcing raw materials to manufacturing and packaging to inventory
warehousing, transportation and distribution. As demand grows for
more customized products and services -- and as the nature of those
products and services becomes more complex -- the next generation
pharmaceutical supply chains will become an increasingly important
source of differentiation for makers of medicines, and will be a
more prominent part in the strategic thinking of industry leaders,
according to PwC.

In the report, PwC outlines six trends that will fundamentally
change the way pharmaceutical companies make and distribute their
products.

1. Health reform shifts emphasis from product features to
patient outcomes: The government's emphasis on health outcomes as a
basis for payments will require pharmaceutical companies to not
only manage the manufacturing and distribution of medicines and
companion diagnostics, but also to combine product offerings with
data and supplemental services that add value through improved
outcomes and efficiencies.

2. New products types: The growth of biologics, bioengineered
vaccines and advancements such as stem cell research and
nanotechnology are diversifying pharma's portfolio with products
that have a shorter shelf life and require more complex
manufacturing and distribution processes than shelf-stable pills
and conventional medicines.

3. Incremental product launch alters the sales curve: Both the
U.S. Food and Drug Administration (FDA) and the European Medicines
Agency (EMA) have shown interest in limited label approvals,
granting "live licenses" contingent on ongoing testing versus the
all-or-nothing phase I through IV approach. Current processes
support revenue projections for "big bang" product launches, with
peak sales upfront. Pharma companies will need more adaptable cost
structures that preserve gross margins at each stage of the product
lifecycle.

5. Growing importance of emerging markets: The growing
importance of the emerging markets will require pharmaceutical
companies to understand patient needs and preferences in the
developing world and modify cost and design of product offerings
and services accordingly.

6. Greater public scrutiny: Globalization, the foreign sourcing
and manufacture of regulated products, and an increase in the
volume and complexity of imported products have increased the need
for supply chain control to identify the risk of contamination and
fake medicines. Regulators are raising the bar on supply chain
safety, demanding sophisticated technology solutions to track and
trace product throughout the supply chain.

"The current pharmaceutical supply chain worked well when the
'blockbuster' paradigm prevailed, but pharma's focus in a
post-health reform world is shifting from products to patients, and
their supply chain processes need to adopt the speed and agility of
other, more consumer-oriented industries such as consumer
electronics and mass retailing," said Wynn Bailey, head of supply
chain strategies, PwC. "In a world where outcomes count for
everything, health organizations need to acquire a much deeper
understanding of patients and their healthcare needs. Information
is the new currency, and the data behind the product may soon be as
valuable as the product itself."

PwC predicts that the pharmaceutical supply chain will undergo
three key changes over the next decade. It will become fragmented,
with different models for different product types and patient
segments; It will become a means of market differentiation and
source of economic value; and It will become a two-way street, with
information flowing upstream to drive the downstream flow of
products and services, and the management of information
transferred between the pharma company, the patient and healthcare
provider will become as important as the movement of product.

"The most successful pharma companies will be those that
recognize the underlying value locked in their supply chain and can
leverage it as a value and brand differentiator rather than just a
cost," said Steve Arlington, global advisory pharmaceutical and
life sciences leader, PwC. "Companies that recognize information is
the currency of the future, will be those that go the final mile
and stand out by 2020."

In its report, PwC outlines four potential scenarios that
pharmaceutical companies might explore as a way to restructure
their supply chains. Depending on their product and channel
portfolio, most companies will have to manage to more than one
scenario simultaneously.

Companies that concentrate on specialist therapies might exit
from manufacturing altogether and, instead, become a virtual
manufacturer, outsourcing the entire supply from production of the
earliest clinical batches to full-scale manufacturing, packaging
and distribution through a network of integrated supply partners.
Alternatively, they might position themselves as service
innovators, building supply chains that are capable of
manufacturing and distributing complex treatments as well as
managing multiple suppliers of integrated, valued-added health
management services.

Mass-market manufacturers, such as the makers of generic drugs,
might position themselves as high-volume, low-cost providers,
borrowing lessons in lean manufacturing, strategic pricing and
inventory management from the consumer products industry. Another
option for mass mass-market manufacturers is to turn their supply
chains into profit centers that combine economic manufacturing and
distribution of satellite services, such as direct-to-patient
delivery, secondary packaging or distribution to hospitals and
pharmacies, and then to franchise it as a stand-alone offering for
both internal and external customers.

The report provides an in-depth explanation of these scenarios
and is available for download at www.pwc.com/pharma2020supplychain.
All of the reports in the Pharma 2020 series are available at
www.pwc.com/pharma2020.